Scope of Activities of an NBFC – P2P

1. An NBFC – P2P shall–

• act as an intermediary providing an online marketplace or platform to the participants involved in Peer to Peer lending;
• not raise deposits as defined by or under Section 45I (bb) of the Act or the Companies Act, 2013;
• not lend on its own;
• not provide or arrange any credit enhancement or credit guarantee;
• not facilitate or permit any secured lending linked to its platform; i.e. only clean loans will be permitted;
• not hold, on its own balance sheet, funds received from lenders for lending, or funds received from borrowers for servicing loans; or such funds as stipulated in paragraph 9;
• not cross sell any product except for loan specific insurance products;
• not permit international flow of funds;
• ensure adherence to legal requirements applicable to the participants as prescribed under relevant laws.
• store and process all data relating to its activities and participants on hardware located within India.

2. Further, NBFC- P2P shall –

• undertake due diligence on the participants;
• undertake credit assessment and risk profiling of the borrowers and disclose the same to their prospective lenders;
• require prior and explicit consent of the participant to access its credit information;
• undertake documentation of loan agreements and other related documents;
• provide assistance in disbursement and repayments of loan amount;
• render services for recovery of loans originated on the platform.

NBFC – P2P shall not undertake any activity other than those stated in paras 6(1) and 6(2) of these Directions. Deployment of investible funds by an NBFC-P2P in instruments specified by the Bank, not for trading, shall however be permitted.

Like NBFC registration for all entities, all NBFC-P2P Companies should also be registered under the Companies Act, 2013 or in case of existing Company under previous Company Act.

For the NBFC incorporation of a prospective NBFC-P2P, the company is required to make an application for registration to the Department of Non-Banking Regulation of the RBI.

No NBFC-P2P shall commence or carry on the business of a Peer to Peer Lending Platform without obtaining a Certificate of Registration (CoR) from the RBI. Thus, Peer to Peer lending registration is subject to a company fulfilling all the conditions specified by the RBI.

The Reserve Bank of India issued a Notification dated August 24, 2017 in terms of sub-clause (iii) of clause (f) of section 45I of the Reserve Bank of India Act, 1934.  

This notification enumerates the Directions for compliance by every Non-Banking Financial Company that carries on the business of a Peer to Peer Lending Platform.

These Directions are known as the Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017 and came into force with immediate effect.

This notification is an extensive statement that outlines in detail the various rules and regulations that all existing and prospective entities carrying on or intending to carry on the business of Peer-to-Peer (P2P) lending, commonly known as NBFC-P2P, will have to comply with.

An NBFC-P2P can act only as an intermediary that provides an online platform to the participants, that is, borrowers and lenders, involved in P2P lending. It must also ensure compliance to legal requirements applicable to the participants as mandated under relevant laws (including the KYC Directions prescribed by RBI). It is also required to store and process all data relating to its and its participants activities on hardware located within India.

The Master Directions, thus, provide a framework for the registration and operation of NBFC-P2Ps in India and some of the important disclosure, code and varied requirements to be followed by NBFC – P2P are mentioned below.

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